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Resetting Performance and Rewards

Make sure that employees understand the link between rewards and the organization’s performance



How do you see the performance and rewards systems landscape across organizations at present?

The current landscape of performance and reward systems is heavily influenced by the ongoing COVID-19 pandemic. Most organizations adopted a very fluid approach during the two years of the pandemic, let go of their usual performance and reward norms and put a greater emphasis on flexibility, adaptability, and understanding of the unique challenges employees were facing in a remote, WFH and flexible work environment. Then there was a huge attempt to get the hybrid model right by all organizations and a talk to use flexibility to redesign work for sustainable high performance. Organizations tried to come up with the most productive combination of time and location for the employees. They didn’t want a scenario which would have a divided culture where people who spend more time in the office are valued and others who worked remotely and didn’t spend more time in office became invisible. Hence, it became important to prioritize fairness while making the hybrid model. If working remotely, the idea was to place more emphasis on rewarding and recognizing employees for traits such as increased autonomy, self-discipline, or adaptability. Entire performance management, compensation and reward systems, were therefore to be derived out after understanding the new roles and structures emerging out of these hybrid models. The aim was to be patient and arrive at fair processes, fair outcomes after a lot of fair interaction with employees as in the end the reward structure would matter to all levels in the organization. Whilst organizations were busy running pulse surveys to find out if employees were still engaged and what mattered to them, the turnover tsunami started happening and organizations were hardly able to keep pace with the recruitment that was happening. It was expected that increments and rewards would take a beating at a time like this but the great resignation phenomenon forced organizations to re-evaluate their offerings to bring in new workers and retain their current ones. By end of 2021 the Covid numbers were down and most companies had called people back to office. And the IT sector too that had originally planned to have their workers WFH or remotely and surrendered their office spaces asked their workers to return to office (RTO). The reason was because of the moonlighting phenomenon! And just like that for most organizations it was the end of the work on changing paradigms of the PMS and reward systems! A renewed focus was now being put on for picking up productivity numbers and bringing them in par with pre-covid numbers. However, the forwarding looking organizations used 2022 as a year to reassess their existing systems and started re-evaluating and adjusting their performance and reward systems to better align with the new realities of work after the upheaval created by the pandemic.

Do you feel that it is appropriate time for resetting the performance and rewards processes in changing new work world of remote and flexibility? If so, how HR should go about the framework as a whole?

This can be an excellent time to revisit and reset the performance management and reward systems in organizations along with various other OD interventions that can help strengthen the leadership framework at a time when there is acceleration of all digital transformational initiatives. Several companies that had suspended their promotions cycles and performance bonuses during pandemic time tried to cover the back log of promoting eligible employees and HR departments were busy churning these out in the last 12/18 months. Other Companies decided to shift their focus to different metrics using new digital and AI tools. Because the fear of another wave of Covid always seems to be around the corner, the progressive organizations have taken their preparedness to another level. They have identified their set of key jobs and critical resources, recalibrated their Strategic Business Plans and the Business Continuity Plans (BCP) just in case. New remote work policies have been designed and compensation packages adjusted appropriately for all concerned. Additionally, many companies are re[1]evaluating promotion and career development opportunities to better support employees during this time. Overall, companies are looking for ways to be more flexible, supportive and understanding of the challenges employees face during such times. With the continued rise of inflation and cost of living, but with the odds of a recession in parts of the world in the next 12 to 18 months, many employers are staying conservative for a potentially difficult 2023 ahead, although it may not be the case in India. If at all for some industry sectors, the margins may get squeezed. HR professionals can facilitate the change in the performance and rewards framework by way of:

  • Re-evaluating the existing performance metrics : With remote work, traditional metrics such as face time in the office may no longer be relevant, it may become more outcome driven. HR in consultation with respective Business heads ought to define new metrics for every job family – organisation wise and industry sector wise.
  • Communicate the above changes clearly: It’s important to communicate the new performance and rewards framework clearly to all employees, explaining why the changes are being made and how they will be measured. Provide training and support :
  • Provide employees with the training and support: they need to succeed in the new framework. A huge part of this could be virtual training on new technologies or communication tools, or additional resources to help employees adapt to working remotely.
  • Monitor and adjust as needed: Keep an eye on how the new framework is working and make adjustments/iterations as needed. This may involve soliciting feedback from employees and making changes based on their feedback.
  • Reward and recognize for different types of contributions: Remote work may require different types of contributions, like increased autonomy, self-discipline, or adaptability. HR should recognize and reward those who display these qualities.
  • Adjust compensation packages: Remote work may change the cost of living for employees, so companies should adjust their compensation packages accordingly.
  • Overall, it’s important for the organization to be flexible and have an understanding of the challenges employees may face in a remote and flexible work environment, and to provide the support they need to succeed.

What should be the new elements and metrics HR should keep in mind while putting performance and reward strategies in place in view of future work world?

Most employees will vouch for the fact that their Companies Performance Management systems are a mere annual exercise for deciding the level of increments employees are eligible for. In many cases the Supervisors do not even sit with the individual employees. This led to HR departments recommending, decoupling of the developmental discussions from the assessment and reward discussions. These discussions were meant to happen more regularly based on the performance feedback and record the skill gaps, recommended training programmes, etc. taking individual preferences for future job roles in mind. A March 2021 McKinsey article and Global Survey about “How HR can build the Organisation of the future” pointed out that half the respondents had said that PMS had not had a positive effect on their or the organisational performance. And two-third reported that they could recommend at least one meaningful modification to their performance management systems. This study further suggested that the future-ready companies share three characteristics: they know what they are and what they stand for; they operate with a fixation on speed and simplicity; and they grow by scaling up their ability to learn and innovate. If that is the case HR in such companies could work on three key areas – managers’ coaching, linking employee goals to business priorities, and differentiated compensation-all of which increase the chances that a performance-management system will positively affect employee performance. However, for this to happen it would require HR to play an important role in embedding these practices in performance management by supporting the goal-setting process, decoupling the compensation and development discussion, investing in manager’s capability building, and embedding technology and analytics to simplify the performance-management process.

Do you see a change in terms of employee expectations on how organizations should reward them and assess their performance?

Yes, there has been a change in employee expectations on how organisations should reward them and assess their performance. With the shift to remote work and increased flexibility, employees are looking for more personalized and adaptable reward and assessment systems that take into account the unique challenges they may be facing. Inflation and the cost-of-living crisis is making a large number of employees also worried about their income levels. Globally, employees are more and more expecting their companies to take into account the personal responsibilities they have to manage while working remotely such as child care, home schooling or health issues. Hence, the four day week is gaining traction. Employers are also aware that that a 5 day working week doesn’t leave people with sufficient time to care for their needs and responsibilities. Of course this is a scenario without domestic helpers. Therefore, it’s highly unlikely this trend will come to India any time soon. But what can happen in the near future is letting employees (even from non IT firms) choose if they want 1-2 WFH day(s) in a week along with the weekend which may be a super idea for retention of those who choose to live life at their own choice whilst managing their work assignments very effectively from home. Employees always expect more transparency in the performance assessment process, and want to see a clear connection between their performance and the rewards they receive. In addition, increasingly employees expect their companies to provide more opportunities for professional development, career advancement, coaching and mentoring to prepare them for new/higher responsibilities or career progression in the system even while working remotely. Overall, employees are looking for rewards and performance assessments that are fair, flexible, and that give them autonomy (choice and control) taking into account the unique challenges they may be facing in their respective environments.

How should organizations ensure that employee see a strong link between their rewards and organization’s performance?

Companies have vision and the CEO’s provide clarity of that vision to employees down the line. All Business Units Heads in every organisation in consultation with the CEO are expected to create their annual strategic business plans to achieve the said financial parameters. These ratios define the financial health of any organisation in terms of its liquidity, solvency, profitability and operating efficiency. As far as employees are concerned their rewards are best linked to the profitability of the Company. If the organisation as a whole and some Business Unit performance doesn’t match the budgeted/expected numbers it can impact the quantum of rewards (increments, bonuses etc.) that a company announces. Within the company which departments contribute the most to the bottom-line or the profitability matters and so on. It’s important as part of the onboarding process the organisation through their HR department provides complete clarity of the Performance Management and Reward System applicable to the different levels of employees in the organisation.

  • Organisations should communicate clearly how employee rewards are tied to the organisation’s/BU’s performance. This can be done through regular performance reviews, team meetings, or other forms of communication.
  • Employees need to be involved in goal setting for themselves and their business function, and make sure they understand how their individual performance contributes to achieving those goals.
  • Each Business function in turn ties rewards to specific performance metrics and are related to the department’s success. This can include metrics such as revenue growth, customer satisfaction, or employee engagement.
  • Regular feedback on performance can help employees understand how their efforts contribute to their department and organisation’s success and how their rewards are tied to it.
  • Organisations should be transparent about the performance metrics and criteria used to determine rewards, so employees can see the direct link between their performance and the rewards they receive.
  • Employees need to be provided with opportunities for career development and advancement, and make sure they understand how their performance and rewards are tied to their professional growth. Here supervisory mentoring and coaching helps.
  • Overall, employee are more engaged in the organisation providing them with information and support to help them succeed.

Overall, organisations should make sure that employees understand the link between their rewards and the organisation’s performance. If they understand that their contributions and ideas are valued and rewarded they will stay engaged and organisations would be able to retain them for longer.

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